The second, “basic”, option would divide 11 sub-funds into three baskets covering equity, fixed income and real assets which London authorities could allocate assets between.

The third “enhanced” option would mirror the second, with the CIV given greater powers on execution, tactical asset allocation, rebalancing and hedging.

Needs

However, a number of funds have voiced worries that the proposals would reduce their ability to allocate assets according to their needs.

A report to councillors drafted by Mark Maidment, London Borough of Wandsworth’s deputy chief executive and director of resources, said: “The concern is that asset allocation is the major contributor to fund performance and by forcing a blended option on individual funds this may negate any efficiency saving, create a de facto passive mandate and hinder their specific requirements.

“The blended option as portrayed will mean the CIV will allocate investments as it sees fit and not in accordance with individual funds strategic and/or specific requirements.”

Nigel Cook, head of pensions investments at London Borough of Croydon, said the CIV’s proposal “seems to imply that the local authority’s investment strategy will be subordinated to the choices made by the CIV, and the pension committee will have to be prepared to compromise”.

He added: “This runs counter to the government guidance on drafting and adopting an investment strategy statement (ISS), and the autonomy and statutory obligations of individual pension committees in respect of their individual authorities.”

Non-blended

A number of authorities are supporting the inclusion of a fourth non-blended mandate, an option proposed by the Society of London Treasurers according to Havering Council’s consultation response.

Maidment’s report said this would mean that “each manager within the pool would have a separate investment focus (e.g. income, growth, low carbon, concentrated/diverse, geographically focussed, etc.).”

Karen Shackleton, senior adviser at MJ Hudson Allenbridge, told Room151: “I do have some reservations about the blended solution, in that the limited number of sub-funds does not, at first sight, appear to offer the London boroughs sufficient flexibility to tailor their strategic asset allocation to their own fund-specific needs.

“However, the London CIV has asked for feedback from the London boroughs as part of its consultation process, so hopefully these concerns will be addressed following on from that discussion.”

Elsewhere in his response, Cook raised concerns about a statement within the consultation that “the CIV will not be able to accommodate individual environmental, social and governance (ESG) policies for each London local authority (LLA)”.

Cook said that this was “problematic and not acceptable”, suggesting instead a qualified majority approach to deciding ESG policy within the pool, and a “proactive approach” of creating sub-products that address different LLAs’ ESG requirements.

Consultation responses showed greater support from individual funds for proposals to reform the governance of the CIV.

The proposals would see a slimmed-down consultative shareholder group of 12 treasurers and pension chairs, along with two general meetings a year for all funds.

Cook said the governance recommendations should make it easier for the CIV to operate and mean a “less bulky and unwieldy oversight structure”, but warned that “reduced representation will bring its own challenges and there is little detail on how a consensus would be reached”.

A statement provided to Room151 by a London CIV spokesperson, said: “London CIV is a pioneer in establishing pooled arrangements and we are now taking stock of how best to deliver the original vision for the CIV in the light of the wider changes that are happening in local authority pension fund management.

“We are having discussions with our stakeholders about how we respond to the governance review and no decisions have been taken as yet.

“As we are engaging with our stakeholders and listening to their views we do not want to prematurely anticipate the variety of possible responses that could result.”

The CIV’s proposals are set to be discussed by London council leaders later this month.

Register for the Room 151 Weekly Email Digest

Latest tweets

Guy Ware: The business rates retention row of ducks: Business rates retention is delayed but is this an opportunity to put the funding of local services on a sustainable footing for the foreseeable future? Only if four key questions[...] dlvr.it/QKjLkG#localgovpic.twitter.com/C2xCNViBFE

Quartet of councils lined up for Municipal Bond Agency’s first issue: Four councils are poised to be involved in the The UK Municipal Bonds Agency’s debut bond issue after Moody’s gave the agency an Aa3 credit rating. Moody’s said the… dlvr.it/QKCqdp#localgov

NAO calls on Whitehall to confront long-term funding of local government: The government’s fragmented approach to oversight of council finances, and the absence of a long-term funding plan are increasing risks to statutory services, according… dlvr.it/QKBQfR#localgovpic.twitter.com/5otTR1wPa5

LPP kicks off first fixed income fund: Local Government Pension Scheme pool, Local Pensions Partnership, has launched its first fixed income fund. The £320m fund is aimed at delivering long-term risk-adjusted returns on global fixed income… dlvr.it/QK3lSM#localgov

Countdown to LATIF North treasury conference in Manchester: There are just over two weeks to go before Room151’s inaugural treasury conference for the north of England chaired by Manchester City Council’s Tim Seagrave and featuring insight from… dlvr.it/QJy2lV#localgov

100% business rates retention could create inequalities: The government’s plan to allow councils to retain 100% of business rates income could encourage greater inequality between councils without promoting growth, according to a new report… dlvr.it/QJJR6v#localgovpic.twitter.com/yiEkObFvel

Leeds offers business loans through peer-to-peer platform: Leeds City Council is to use a peer-to-peer lending platform to lend money to local businesses. The authority has decided to use the rebuildingsociety.com platform — based in the[...] dlvr.it/QJJDWz#localgov

Northamptonshire palns for £10m in cuts a week after ‘unlawful’ budget: Northamptonshire County Council has approved a revised budget for 2018-19, a week after its auditors warned that its original plans were potentially unlawful. The authority… dlvr.it/QJGQy2#localgov

Carillion collapse causes £5m loss to LGPS funds: Three Local Government Pension Scheme funds have lost up to £5m as a result of direct investments with Carillion, according to an assessment of the impact of the company’s liquidation.[...] dlvr.it/QJGHXq#localgov

Helen Randall: Court ruling over Haringey’s development vehicle offers clarity to councils: Politics killed the controversial Haringey Development Vehicle but a challenge through the courts failed. Helen Randall explains what the ruling means… dlvr.it/QHsBk0#localgovpic.twitter.com/JgYrPCH8E4

We use cookies to ensure that we give you the best experience on our website. If you continue without changing your settings, we'll assume that you are happy to receive all cookies from this website.OK